A study released last week by a nonpartisan research group predicted healthcare costs will rise dramatically in the next five years, outpacing inflation by a 2-to-1 margin.
Small businesses would shoulder much of the added burden, and individuals would face higher out-of-pocket costs, according to the study, which was commissioned by the Washington-based National Coalition on Health Care and funded through a grant from the Henry J. Kaiser Foundation.
"Healthcare cost pressures have resumed and will continue to build," said Henry E. Simmons, M.D., president of the NCHC. "Unfortunately, it appears that the easy savings in health costs have already been squeezed out. What we're seeing now is a return to the inflationary pressures of the 1980s."
While many industry observers agree healthcare costs were on the rise again after staying flat for several years, they suggest the study's projections are too dire.
"We think costs are picking up but in the short term don't see them outpacing inflation," said Glenn Meister, a consultant in the Los Angeles office of Foster Higgins, a national benefits consulting firm.
The study projected nationwide healthcare expenditures will increase 6.4% annually beginning this year, reaching $1.5 trillion in 2002, compared with an average annual increase of 3.5% between 1993 and 1995. The study cited expenditure data from HCFA.
The threat of national healthcare reform during the first term of the Clinton administration and pressure from employers on insurers to keep premium increases low kept costs in check earlier in the decade, concluded Kenneth E. Thorpe, director of the Institute for Health Services Research at Tulane University Medical Center in New Orleans.
Thorpe prepared the study for the NCHC.
Now, however, insurers are under the gun from their own shareholders to enhance financial performance.
"To attract market share, some plans underpriced their products. Over the past two years, operating profits and administrative costs among health plans have decreased sharply," Thorpe wrote.
Add to that the growth in Medicare and Medicaid expenditures, he argued, and the scenario for rapidly rising costs is established.
Among employers, the study predicted small businesses would be hit the hardest, with their costs increasing twice as quickly as large employers'. Companies with fewer than 10 employees would face an average annual premium increase of 7.4%, it predicted. Those with 10 to 24 employees would face an average annual premium increase of 6.3%.
In contrast, the study said companies with 1,000 to 5,000 employees would experience an average annual increase of just 3.1%.
The study concluded that some of those costs will be passed on to individual consumers in the form of higher copayments and deductibles.